The UK defense expenditure during the review period has seen a gradual increase

Monday 5 March 2012, Amsterdam

The UK defense expenditure during the review period has seen a gradual increase.  The major share of defense budget is accounted for revenue expenditure and this trend is anticipated to continue over the forecast period due to significant cuts on government policy on procurement.  However, the revenue expenditure for the forecast period is expected to decline due to the significant budget cuts announced by the government. The market opportunities exist in areas such as armored fighting vehicles, aerial refuelling capabilities, aircraft carriers and satellite-based communication systems.

As the budget allocation for the defense expenditure is directly proportional to the GDP, the global financial crisis of 2008–2009 has affected the defense expenditure trend.  Due to this the government has reduced spending on some segments and is focussing on specific segments like the Air Force and space related defense capabilities.  The capabilities of the Air Force are expected to be modernized by the implementation of the Future Strategic Tanker Aircraft (FSTA) project. The country is also expected to invest in advanced satellite-based communication systems.  The modernization of defense equipments in the areas of Army, Navy and space related defense capabilities like aerial refuelling, armoured fighting vehicles and satellite based communication systems are fundamental drivers in the UK defense market.

Imports are expected to decline due to defense budget cuts announced by the UK government whereas the government is expected to support defense export related activities by initiating the design and manufacture of new short range aircraft, aero engines and wings, rotorcrafts and unmanned aerial systems.  Domestic companies exercise limited bargaining power in the market since the Ministry of Defense (MoD) is the only purchaser of defense equipment and has an option to procure weapons off-the-shelf from foreign defense companies, as the UK does not have stringent offset requirements for its defense procurements.

The government does not pose barriers for FDI entry into the market and there are no restrictions on the takeover of domestic companies by foreign companies.  As the UK is a member of the EU, the country favours European collaboration on product development programs. Such collaborations are favourable as they provide defense manufacturers with an export opportunity and access to the most advanced technology at a reduced cost.